Re: Why economists do not care about high rates of unemployment w

[ECWFM@xxxxxxxxxxxxxxxxxxx]

This is the first of two replies: one about  the ongoing problem
I have with the use of the concepts of ergodicity and non-e in this debate and
a second about marxist ideological baggage. I send two emails because we have
storms in New South Wales at present and i am at my home communicating via a
modem and the line is not as robust as the lines at the university. So i do not
want to lose what I have written.


The concepts of ergodicity and its alternative are borrowed from mathematical
statistics and relate to the way processes operate over time. Economists have
seized upon them because they have a easy interpretation in terms of
equilibrium. an ergodic state is a similar notion to a steady state and hence
equilibrium. of course, economies are dynamic processes and exhibit
non-stationarities (NS). the source of these NS is not exclusive. Neoclassical
(NC) economics would like us to believe that the only NS are deterministic and
can therefore naturally decompose the growth process into ergodic components
(which they term the cycle and which allows them to mount a major argument
against activist aggregate policy - in the sense that it is futile and gains
cancel out against losses), and the secular growth components (which are
invariant to the ergodic components. Yet as I have been saying in this column
recently (which no convincing argument being made against me), NS can arise
from non deterministic sources and this possibility in a theoretical sense
opens up a vista of policy activistm pursuing multiple equilibria (presumably
the socially desirable one of many).

Now I find it curious for Paul and others (this is not a "question for Paul"
response by the way), keep saying it is non ergodicity which differentiates us
from the NC and other jackasses. I do not think so. I agree entirely in the
argument that the future is probabilistic from the point of view of the system
but not from the point of view of the individual decision makers whose
decisions drive the system. But even if the whole system is NS, it can still
exhibit stationarity in terms of linear combinations of the variables which
make up the system. To argue otherwise is to agree that involuntary
unemployment is a disequilibrium phenomenon. I thought Keynes was at length to
point out that the persistency of involuntary unemployment was an ooutcome that
the capitalist system would be likely to move to and stay there - repeat, stay
there. In other words it was a steady state and required policy intervention to
shock it back to more desirable outcomes. that is, there are multiple
equilibria and the policy can choose between them - sounds like stochastic NS
to me with the implication that the dynamics of our economy are in part error
correcting and hence there is some stationarity. So i fail to see that the
difference between us and them is in our rejection of stationarity. Rather it
is in, perhaps, the way we see NS. Yet even then not necessarily (see my
Applied Econommics Paper december 1993 for a bit of my view on this).

My second instalment will be about Marx and Keynes

kind regards bill mitchell department of economics university of newcastle nsw
australia  ecwfm@xxxxxxxxxxxxxxxxxxx